A repurchase contract (repo) is a short-term guaranteed loan: one celebration offers securities to some other and agrees to repurchase those securities later on at a greater cost. The securities act as security. The difference between the securities’ initial price and their repurchase cost could be the interest compensated from the loan, referred to as repo rate.
A reverse repurchase agreement (reverse repo) may be the mirror of the repo deal. In a reverse repo, one celebration acquisitions securities and agrees to offer them straight right back for an optimistic return later on, frequently the moment the following day. Continue reading “What’s the repo market, and exactly why does it matter?”